On March 22, 2017, the U.S. Court of Appeals for the Second Circuit ruled against Christine Bodouva that her restoration of funds to her Company’s 401(k) Plan should be offset against the District Court’s order for forfeiture in her criminal trial. U.S. v Christine Bodouva, Case 16-3937, 2nd Cir. 3/22/17.
Ms. Bodouva was the Chief Operating Officer and Senior V.P. of William N. Bodouva & Associates architecture firm. She was the responsible fiduciary for remitting employee salary deferrals to the 401(k) plan custodian.
In March 2016, she was indicted under ERISA’s criminal statutes for embezzling $127,854.22 from the Plan. The criminal indictment called for a “forfeiture” (disgorgement) of the amounts wrongfully converted to her personal use.
REQUEST FOR OFFSET
Before her criminal trial, Ms. Bodouva restored $126,979.63 to the 401(k) Plan. At her sentencing (following conviction), she asked the Court to offset her forfeiture by the amount already paid back to the Plan. The District Court ruled that it had no discretion to do so.
She appealed the District Court decision on the offset to the Second Circuit Court of Appeals which ruled:
1) Restitution and forfeiture are authorized by separate statutes with different purposes;
2) The court could not find any statutory authority to reduce a criminal forfeiture by restitution paid or payable; and
3) “Criminal forfeiture is a form of punishment” and distinct from civil remedies to make victims whole.
Result – the errant fiduciary had to pay twice the amount taken from the retirement plan. Those fiduciaries responsible for depositing employee deferrals should think (more than) twice before directing employee funds for their own use.